Squire Patton: 2nd Circuit Undermines Threat of Mass Arbitration Fees, Limiting Plaintiff Strategy
The recent ruling from the 2nd U.S. Circuit Court of Appeals rejecting the use of the Federal Arbitration Act (FAA) to compel arbitration on businesses that fail to pay fees undercuts a strategy that the plaintiff’s bar “often” uses in privacy claims, said a Squire Patton blog post Monday.
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The case, Frazier v. X Corp., didn't deal with privacy but instead “arose out of large-scale layoffs” at Twitter after Elon Musk acquired the platform. Fired employees brought arbitration actions against the social media corporation using the FAA, despite having signed arbitration agreements in their contracts.
Though the district court originally sided with the employees, on appeal, the 2nd Circuit’s decision in September (docket 24-1948) reversed that ruling. The high court found that “the FAA only allows a court to compel arbitration where there has been a ‘failure, neglect, or refusal’ to arbitrate,” and any further procedural issues are for an arbitrator -- not a judge -- to decide, the Squire Patton lawyers said.
Businesses in the 2nd Circuit’s jurisdiction now have “an extra line of defense when facing large fees from mass arbitration,” the blog post said. The case “offers persuasive authority for defendants litigating in other forums.”
But “given the recent abuse of mass arbitration as a procedural mechanism by the plaintiff’s bar to bring frivolous or unsupported claims, particularly in the area of consumer privacy,” it's important for companies to “stay vigilant and carefully review the language in existing arbitration agreements to make sure their potential exposure to mass arbitrations in the first place are minimized.”